It's all about the rationing

Really2

MacMickster wrote: »

So lenders now require higher deposits than has historically been the case, or a guarantor in place of a deposit - and this is seen as a problem?

Sounds to me as if lenders are generally having a few bearish tendencies in their outlook, with an eye on their future balance sheets. I would much prefer them to continue to take a prudently cautious approach to lending, than the apparent free for all that existed in the run up to 2007.

The majority of mortgages at 10% would not be a free for all surely?

I think the point most are missing is that the majority of mortgages available require twice the long termaverage deposit. Not sure why so many are saying 2007 here?

Really2

JonnyBravo wrote: »

5% deposit mortgages were available in 98.
I know cos I first bought then too. I was umming and arring between 5% and 10% and whether I'd have the money I needed to do the house up if I put down 10%.

I think one of the elders on here said they were available in the 70's

IveSeenTheLight

CLAPTON wrote: »

madness to allow 5% except in exceptional circumstances

Really, why?
There are many examples of loans, even unsecured that are 100%.
A mortgage is very simply a loan, albeit one of the largest loans one is likely to take.

Let's consider a 100% loan of £100k at 5%.

After year one, you have paid off 2.1% of the mortgage
After year 2, you have paid off 4.2% of the mortgage
After year 3, you have paid off 6.5% of the mortgage

So if you have put down a 5% deposit

After year one, you have 7.0% equity (assuming the house price has not changed)
After year 2, you have 9.0% equity (assuming the house price has not changed)
After year 3, you have 11.2% equity (assuming the house price has not changed)

So very simply, by having a captial and repayment mortgage, you are reducing the risk, year on year (month on month) that the mortgage is paid

the_flying_pig

I don't think LTV is key. Well, maybe. Everyone would agree that Northern Rock's legendary 125% Together mortgages were pure filth, and that the LTV was the key component of that.

But for me the most pernicious aspects of the loose lending boom were, starting with the worst:

1 - self certification even for people in 'normal' jobs;
2 - huge sea change towards interest only;
3 - ridiculous income multiples, especially around joint incomes I]'4 times joint income you say? yeah, that sonds reasonable'[/I;
4 - high LTVs.

the fact is that someone who has a very well-paid, very secure job, is almost always a good person to lend money to, regardless of deposit size.

MacMickster

Really2 wrote: »

The majority of mortgages at 10% would not be a free for all surely?

It would if lenders are anticipating possible house price falls over the next few years.

Really2

MacMickster wrote: »

It would if lenders are anticipating possible house price falls over the next few years.

????Sorry that kind of answer loses me as the banks are not fortune tellers as we all know.

Constricted lending is due to them shoring up ballance sheets to meet criteria, not on housing price predictions.

If they did that perhaps we should of had 25% deposits in 2007 not now?

Lending has nothing to do with anticipating prices, car loans would be impossible?

25% is not there because they are predicting 25% falls. it is there as they have limited funds so would rather it go to the safest bets.

Graham_Devon

Really2 wrote: »

????Sorry that kind of answer loses me as the banks are not fortune tellers as we all know.

Constricted lending is due to them shoring up ballance sheets to meet criteria, not on housing price predictions.

If they did that perhaps we should of had 25% deposits in 2007 not now?

Lending has nothing to do with anticipating prices, car loans would be impossible?

Oh come on. That's ridiculous.

Nothing at all to do with the direction of the assets the lending is based on!?

MacMickster

[QUOTE=Really2;46740235Lending_has_nothing_to_do_with_anticipating_prices,_car_loans_would_be_impossible?[/QUOTE]

Car loans are not secured loans.

Really2

MacMickster wrote: »

Car loans are not secured loans.

So are far more risky but they lend 100%?

Mortgage debt is recoverable past the asset, EG any shortfall falls on the borrower.

julieq

There's nothing wrong with 125% mortgages. It's just a secured loan plus an unsecured loan at a low rate. You can quite easily have a customer with a 90% mortgage on a house worth 100K plus 35K credit card debt or a car loan at 20% APR which comes to the same thing in terms of total secured and unsecured debt as £125K on a 125% mortgage at 6% (for example). Whether the risk is worth it depends on the default rate.

I have this overwhelming sense of deja vu here, but high deposit requirements on mortgage lending currently have nothing much to do with forward views of asset values, they're based on new capitalisation rules requiring particular categories of capital to be held as a proportion of lending.